The good macroeconomic performance of the Polish economy is having a positive effect on the warehouse market. Since the beginning of the year, demand has exceeded 2.54 million square metres, spurring on subsequent investments – in Q3 an impressive result of 1.34 million m2 of modern warehouse space was under construction. Developers are building on mass, but are less likely to take risks and are limiting speculative investments. High demand, falling staff availability and a limited number of attractive investment areas are affecting rent levels in the market – according to AXI IMMO report with the summary of Q3 2017 at warehouse market in Poland.
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Gross demand in Poland amounted to 720,000 m2, of which lease agreements and expansions made up 62%. This result is 23% higher compared with the same period last year. Despite this, due to record demand in the first half of the year (1.82 million m2), at the end of 2017 we can expect last year’s result of 3.09 million m2 of leased warehouse space to be equalled or even exceeded.
Most warehouse spaces were leased in the Warsaw region – 155,000 sqm, of which over 138,000, or 90%, constituted contracts outside the city boundary. In the second place was Central Poland with 134,000 sqm, and just behind it was Upper Silesia with 105,000 sqm of leased warehouse space.
As said AXI IMMO’s report the most expansive tenants in the third quarter of 2017 were logistic operators (over 30% of demand) and companies from the retail sector (13%). large group of tenants were companies from the automotive sector, whose share in gross demand amounted to over 11%.
The warehouse market remains highly influenced by e-commerce, which generates high demand. This is revealed not only in direct lease agreements between online stores and developers, but also in the growing number of contracts signed by logistic operators for external customers from this sector – comments Anna Głowacz, Head of Industrial – Leasing Agency.
The largest new lease contracts in the third quarter 2017 were signed by Agito in P3 Błonie (33,100 sqm), VIVE Group in Panattoni Park Kielce (26,300 sqm) and FM Logistic in P3 Piotrków (18,300 sqm). Major transactions in the past months also include the contract renewal and expansion of Moto Profilin Prologis Park Chorzów (44,300 sqm), Whirpool in Goodman Wrocław I (25,900 sqm) and the extension of the contract and expansion of Sarantis in MLP Pruszków II (14,400 sqm).
The total supply of modern warehouse space in Poland in the third quarter of 2017 exceeded 13 million square metres. This is the result of 1.59 million square metres of space being completed since the beginning of the year, of which 870,000 square metres, or nearly 55%, were made investments completed in Q3. Supply growth is very high. For comparison, in the third quarter of the previous year, 390,000 sqm were completed, which means an increase of 223%.
As a result of the signing of a large number of leases in the first half of 2017, at the end of the third quarter a high level of warehouse space under construction, over 1.15 million sqm, was recorded. For comparison, in the analogous period of 2016, there were 955,000 sqm (an increase in Q3 2017 by 20%) under construction. More than 70% of space under construction will be completed by the end of this year, we read in AXI IMMO’s report. Most space is being built in Central Poland (over 356,000 sqm), in Upper Silesia (219,000 sqm) and in the Warsaw region (212,000 sqm).
Fully speculative investments are becoming fewer. At the end of September, their share in total warehouse space under construction fell to 20%. Investments secured by lease agreements and dedicated to individual tenants (BTS) are predominant.
Developers are actively working on other projects, preparing land and building permits, but they only launch new projects after signing at least 1-2 pre-let contracts – adds Anna Głowacz.
Apart from the logistic center built in Sosnowiec for Amazon (135,000 sqm), the largest warehouse investments are currently being built in Central Poland. These include BTS projects carried out by Panattoni for: Castorama (100,000 sqm) in Stryków, BSH (79,000 sqm) in Łódź and OBI in Łódź-Nowosolna (50,000 sqm). A logistic centre for Kuhene Nagel (56,000 sqm) in Piotrków Trybunalski prepared by P3 is also under construction.
At the end of the third quarter of 2017, the vacancy rate in the Polish warehouse market was 5.6%, which means a slight increase of 0.1 p.p. compared to the corresponding period of 2016. The largest amount of free space available immediately was recorded in Malopolska (9.3%) and Poznan (8.5%), as well as in the Warsaw region – about 7.9% (in the city and in III zone, about 50 km away from the capital). The lack of free warehouses is most often felt by tenants in Central Poland, where the vacancy rate is 1.79%.
In most locations, there is a downward trend in vacancy rates due to less interest in speculative investments by developers. Instead, they increasingly prefer pre-let investments secured by lease agreements, preferably for 5 years and longer, as well as BTS or BTO (fee development), which they are able to deliver not only in the main warehouse markets.
Prepared by AXI IMMO data analyses on rental rates in the last few quarters clearly shows a change in the current trend – a move towards rent increases for warehouse space is visible.
On the one hand, this is the result of internal changes in the market, including vacancy levels and speculative investments. On the other hand, there is the overall macroeconomic situation, including the increase in labour costs, which in turn is reflected in rising investment expenditures. New developer investments are more expensive than two or three years ago, also due to the limited supply of land following changes in the law governing the purchase of agricultural land in April 2016 – comments Renata Osiecka, Managing Partner AXI IMMO.
The most attractive effective rents are obtainable in the Warsaw area (EUR 1.9-2.4/sqm) and in Poznan (EUR 1.9-2.5/sqm). Locations with the highest rates for warehouse space are Krakow (EUR 2.90-3.5/sqm) and Łódź (EUR 2.50-3.00/sqm).
On the demand side, by the end of 2017 we expect a similar result to last year with approximately 3.09 million sqm of leased space or even a few percent higher. Positive economic forecasts, high internal consumption and foreign investment will encourage tenants to enter into new contracts and expand existing ones.
In upcoming quarters, developer’s activity will remain high. We expect further growth in the popularity of BTS and BTO investments, which will edge out speculative projects. Encouraged by the good economic environment, developers are securing more land for the construction of logistics and warehousing centres, also in emerging markets outside the main warehouse hubs – adds Renata Osiecka.
The share of five-year contracts will gradually increase in the structure of lease agreements, which are gradually replacing three-year contracts, which two years ago were considered as the market standard.
Rental rates are showing a general upward trend as a result of the low availability of A-class space available immediately and the relatively low number of speculative investments under construction. In the next few months, we can expect a gradual correction of the current low rental rates, also due to the growing spending on new warehouse investments.